Mutual fund distributors say that online trading of mutual funds will leave investors at the mercy of stockbrokers and expose them to further mis-selling
Market regulator Securities and Exchange Board of India's (SEBI) latest effort to shore up mutual fund trading volumes on the stock exchanges has not gone down well with the distributors' community. Industry experts believe that having mutual fund investments in demat form does not serve investors' interests and will expose them to further mis-selling.
No investor is being forced to open a demat account for investing in mutual funds. The article said that the regulator has invited suggestions from the Association of Mutual Funds in India (AMFI) by 15 June 2010, on making it mandatory for all mutual fund investors to open demat accounts.
Recently, the regulator sought banks' help to promote the stock market route for mutual funds. However banks' managements were not keen on SEBI's suggestions. The meeting was attended by NSE's deputy MD Chitra Ramakrishna and BSE's deputy CEO Ashish Chauhan. From the banking side, senior officials from Union Bank of India, State Bank of India, HSBC and Canara Bank were present at this meeting.
The independent financial advisor (IFA) who wishes to make a living from advice will never lose out. His clients may have a demat account but they don't have to trade and transact based on their broker's advice. Brokers provide little value-add as advisors.
The role of an IFA is that of a financial planner, guide and friend to the client. By investing in mutual funds through the demat route; the personalised role of an IFA is diminished. The IFA has to become a sub-broker with a national distributor and work according to the policies and objectives of the national distributor whose objective may not always be in the best interests of the mutual fund customer. The reason for this is that the platform they work on is speculative in nature. The broker (who normally trades for his clients on shares) will have no time to give quality advice to the clients.
Demat totally defeats the very purpose of abolition of loads to bring down the cost of investing in mutual funds. I fail to understand the logic of the suggestion of the regulators
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